Document Security Systems (NYSE:DSS) has evolved into a multi-industry business growing through opportunistic acquisitions. Its roots lie in packaging and document printing. It has a new direct marketing company, a biotech that is in the process of being spun off to shareholders, a REIT focusing on health care facilities, an alternative trading platform for token exchange, as well as other investment. It has over $60 million in cash and another $7 million in marketable securities with which to pursue opportunities. Its enterprise value is approximately $28 million.
Premier Packaging Has Sold Out for 2021 and New Ventures Could Soon Generate Revenues
Like all businesses this year the supply chain is hurting DSS as it maneuvers to get raw materials. Much as we are used to hearing about chip shortages, DSS has its own problems with paper shortages as a lack of labor makes delivery of material difficult. Premier is now operating at full capacity given its own capabilities combined with the ability to source components. It is sold out for the rest of 2021 and working on its 2022 plans, during which should have double the revenue potential once its new press is installed. It is currently having strong demand from food and beverage manufacturers, and in particular, any beverage sold in a four pack. It is also starting to manufacture higher end higher gross margin packages for direct sales. It has been using these fancier packages for its own direct sales business, and expects to begin selling to other direct marketing companies not affiliated with DSS in Q4 2021.
Impact Biomedical continues to test its products and seek out customers. DSS is on track to dividend out this entity and is waiting for SEC approval before it holds a board of directors meeting to pick a record date. At the moment, the plan is to wait until the entity has some revenues under its belt before it pursues an IPO as a separate public company. Revenues could start as soon as Q4 for some of its products. Those with the most near term promise include the 3FDB (DEET Booster) insect repellent and anti-microbial ingredient to improve the effectiveness of DEET used in bug spray or lotions, etc. Another product with near term potential is its Laetose technology that combines sugar and inositol to lower sugar consumption and may even be able to avoid tariffs supported by big sugar. Equivir might result in a Cold-EEZE type product with anti-viral effects and made from substances found in plants.
Puradigm is a new May investment for DSS. It sells air purification systems that kill viruses. DSS plans to help Puradigm get distribution of its products that include stand alone devices, wall mounted as well as all building solutions for HVAC systems. In August Puradigm announced that a study from the University of Florida showed Puradigm’s technology makes SARS-CoV-2 undetectable on stainless steel surfaces after 24 hours. It uses a plasma oxidative method of air purification. It can also be used to kill bacteria and improve food safety. Marketing this product line could afford near term revenues for DSS’s new DSS PureAir subsidiary.
Q2 2021 Earnings Results
Total revenues for the quarter were $4.2 million versus a restated $2.8 million a year ago, up 50.6%. Printed product sales were $3.4 million versus a restated $2.3 million in Q2 2020, up 48.6%. Technology sales, services, and licensing grew 2.1% to $480,000. The AuthentiGuard business was sold on May 7, 2021 to Proof Authentication Corporation for $5 million. Proof is obligated to give DSS a licensing fee for any new business Proof brings in and DSS will also refer new customers to them generating fees. RBC Life Sciences (direct marketing) reported revenues of $809,000 up from $506,000 a year ago, up 59.9%.
Gross margins were 27.3% down from last year’s restated 37.8%, and also down sequentially; gross margin dollars were $1.1 million up only 9% from last year despite the sales growth.
Operating expenses were $11.2 million, a huge increase from $2.3 million last year and $4.8 million in Q1 2021. SG&A was up $3.8 million and every category increased except rent and stock-based compensation. Included in SG&A were about $3 million in accruals for future spending.
Other expenses contained a one-time unrealized loss on marketable securities of $6.8 million. Its 48.8% of Sharing Services Global’s net income produced a loss of $332,000. Minority interest was a reversal of $228,000 loss. DSS is currently working to help turn around problems at Sharing.
The loss from continuing operations was $3.9 million versus a $920,000 loss last year and discontinued operations lost $114,000 this quarter versus $1 million in Q1 2020.
Loss to common shareholders was $4.0 million versus a loss of $1.9 million last year. The GAAP loss per share was $0.20 versus a loss of $1.23 a year ago. Non-GAAP it was a loss per share of $0.15 versus a loss of $1.18 last year. The shares outstanding increased 1,163% to 19.4 million primary shares. Primary shares outstanding as of May 7, 2021 were 27,670,125.
On June 30, 2021 the company had $66 million in cash, working capital of $77 million and debt of $8.1 million. It owns $6.7 million in real estate as well as $14 million in marketable securities that includes 91.2 million shares of Sharing Services Global (OTC:SHRG) as well as 150 million warrants exercisable at $0.22 (valued at $9.1 million at $0.10 per share) and 127,179,311 shares of Alset International Limited (Ticker: 40V.SI) worth $5 million.
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